This
report has cleared the Treasury Inspector General for Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.

This report presents the results of our
review of the internal controls over the Receipt for Payment of Taxes (Form
809) within the Phoenix Collection Field function[1] (CFf) office.The overall objective of this audit was to
determine whether internal controls for collecting and depositing remittances
within the Phoenix CFf office were effective.We initiated this review because the Form 809 is classified as a
security item, and its use is strictly controlled and limited to only certain
employees.

Impact on the Taxpayer

CFf employees are required to issue a Form
809 receipt when cash is received from a taxpayer.All remittances secured by CFf employees must
be transmitted to the appropriate designated Submission Processing site[2] on the day collected or as soon as possible
on the next business day.The Phoenix
CFf office properly issued and accounted for Form 809 receipt books and timely
transmitted remittances to the Submission Processing site for processing.Effective
controls over Form 809 issuance and processing are important to ensure the
accurate and timely deposit of taxpayer payments.

Synopsis

Each Form 809 receipt
book is assigned for the exclusive use of the intended employee, who is allowed
to have only one assigned receipt book at a time.To request the initial assignment of a Form
809 receipt book for an employee, the employee’s group manager must prepare a
memorandum authorizing the employee to receive the book.All remittances secured by
CFf employees must be transmitted to the Submission Processing site on the day
collected or as soon as possible on the next business day to meet Internal
Revenue Service (IRS) goals for timely deposit and to avoid unnecessary delays
in processing.Group managers must
review all receipt books assigned to their employees at least once per year to
verify that all receipts have been accounted for.

We reviewed the Form
809 receipt books issued to the 32 revenue officers assigned to 4 groups at the
Phoenix CFf office.Overall, the Form 809 receipt books were properly issued to and
maintained by the revenue officers, the annual reconciliation of issued receipt books was timely completed, segregation
of duties was adequately maintained within the groups, remittances
were timely transmitted to the Submission Processing site for processing, and receipt books were properly returned to the
Submission Processing site when revenue officers separated from the Phoenix CFf
office groups.However, revenue officers
transferring between field offices were not required to return their receipt
books.In addition, 6 receipt books had
not been returned as required because no receipts had been issued within the
last 3 years.

While these
conditions are not in accordance with established procedures, based on the
results of our other control tests, we considered them to be of minor
significance and risk.While we made no specific
recommendations, we did suggest management take the actions deemed necessary to
correct the conditions.We did not
identify any employee misuse of remittances intended for the IRS.

Response

Because this is a positive report and we made no
recommendations, comments from the IRS were not required. However, key IRS management officials reviewed
the report prior to issuance.

Copies of
this report are also being sent to the IRS managers affected by the report results.Please contact me at (202) 622-5894 if you
have questions or Philip Shropshire, Director, Special Tax Matters, at (215)
516-2341.

Collection
Field function employees are required to issue a Form 809 receipt when cash is
received from a taxpayer or when a receipt is requested by the taxpayer.

The Receipt for Payment of Taxes (Form
809) is an official document for receipt of cash payments from taxpayers.Effective controls over Form 809 issuance and processing are important
to ensure the accurate and timely deposit of taxpayer payments.Each Form 809 receipt book contains 50 receipts
consisting of four parts (Part 1, Posting Voucher; Part 2, Receipt for Payment
of Taxes; Part 3, Memo Copy; and Part 4, Receipt Book Copy).When a Form 809 is issued, Parts 1 and 3 aresubmitted with the payment on a Daily
Report of Collection Activity (Form 795/795A) to the appropriate Submission
Processing site[3] Teller Unit.The employee provides Part 2 to the taxpayer; Part 4 remains with the
Form 809 receipt book.

Each Form 809 receipt book is assigned for
the exclusive use of the intended employee, who is allowed to have only one
assigned receipt book at a time.To
request the initial assignment of a Form 809 receipt book for an employee, the
employee’s group manager must prepare a memorandum authorizing the employee to
receive the book. Collection Field
function (CFf)[4] employees are required to issue a Form 809
receipt when cash is received from a taxpayer or when a receipt is requested by
the taxpayer for payment made by any means other than cash (e.g., check, money
order, or draft).All remittances
secured by CFf employees must be transmitted to the Submission Processing site
on the day collected or as soon as possible on the next business day to meet Internal
Revenue Service (IRS) goals for timely deposit and to avoid unnecessary delays
in processing.Group managers must
review all receipt books assigned to their employees at least once per year to
verify that all receipts have been accounted for.

This
review was performed in the Small Business/Self-Employed Division CFf office in
Phoenix, Arizona,
and in the Wage and Investment Division Submission Processing site in Ogden, Utah,
during the period February through June 2007.The audit was conducted in accordance with Government Auditing Standards.
Detailed information on our audit
objective, scope, and methodology is presented in Appendix
I.Major contributors to the report are
listed in Appendix II.

We reviewed the 32 Form 809 receipt books issued
to the 32 revenue officers assigned to 4 groups at the Phoenix CFf office.Specifically, we inventoried the receipt
books that were issued to the revenue officers, inspected the books for issued
and unissued receipts, and reconciled the books and receipts to the inventory
list maintained at the Ogden Submission Processing site.Figure 1 shows a total of 116 receipts had
been issued from the Form 809 receipt books that had been issued to the 32 revenue
officers.In addition, we reviewed the
annual reconciliations performed by the managers of the four CFf groups and
evaluated the segregation of duties within the groups.Overall, the Form 809 receipt books were
properly controlled by the CFf groups.

Figure 1:Count of Form 809 Receipt Books and Issued
Receipts

Number
of Revenue Officers Issued a Form 809 Receipt Book

Number
of
Form 809 Receipts Issued

Group 11

9

60

Group 15

8

5

Group 18

7

28

Group 19

8

23

Total

32

116

Source: Auditor analysis of the issued Form 809
Receipt Books.

Form
809 receipt books were properly issued and maintained by the CFf groups

The Form 809 receipt book is classified as a security item, and its use
should be strictly controlled and limited to only certain employees.We found the Form 809 receipt books were properly issued to and
maintained by the revenue officers assigned to the four Phoenix CFf groups. For example, thefour CFf group managers had properly prepared
authorization memoranda for the initial issuance of the receipt books and the revenue
officers who were issued the books had returned the signed acknowledgments of
receipts to the Submission Processing site Teller Unit as required.Our comparison of the serial numbers from the
Form 809 receipt books assigned to each of the 32 revenue officers to the list
of issued receipt books maintained by the Submission Processing site reflected
that all books were properly accounted for. Each employee was assigned only one Form 809
receipt book at a time, each receipt book was assigned for the exclusive use of
the intended employee, and employees maintained strict control of their receipt
books.

When a Form 809 is issued, Parts 1 and 3 aresubmitted with the payment to the
appropriate Submission Processing site, Part 2 is provided to the taxpayer, and
Part 4 remains with the receipt book.Revenue
officers should ensure Form 809 receipts are issued in numerical sequence; unissued
receipts should consist of all four parts. Our review of the 32 Form 809 receipt books
showed unissued receipts were sequential, contained all four parts, and the
last issued receipt corresponded with the Submission Processing site records.

Form 809 receipt books must be returned to
the issuing Submission Processing site within 10 business days of discontinued
use due to employee actions such as separation, transfer to another field
office, or change of position.The receipt
books also must be returned if no receipts have been issued within the last 3
years. While Form 809 receipt books were
being properly returned to the Submission Processing site when revenue officers
separated from the Phoenix CFf groups, one revenue officer transferring between
field offices was not required to return the receipt book.In addition, 6 receipt books had not been
returned as required because no receipts had been issued within the last 3
years. While these conditions are not in
accordance with established procedures, based on the results of our other
control tests, we considered them to be of minor significance and risk. Therefore, we are making no specific
recommendations; rather, we suggest management take the actions deemed
necessary to correct the conditions.We
did not identify any misuse of remittances intended for the IRS.

The
annual reconciliation of issued Form 809 receipt books for the CFf groups was
conducted

At least once a year, group managers must
review all official receipt books assigned to their employees to verify that
all official receipts have been accounted for.As part
of the yearly review, referred to as the Annual Reconciliation of Official
Receipts, the Submission Processing site will transmit to the appropriate CFf
office an Annual Listing of Form 809 Receipt Book Report with a cover
memorandum requesting a response within 30 calendar days.The Report will contain (by group) the name
of each employee to whom a receipt book is assigned, the serial number and
receipt numbers of each receipt book assigned to an employee, and the receipt
numbers submitted through the end of the year from each book.

The Phoenix CFf office timely completed the
annual reconciliation of Form 809 receipt books.As part of the reconciliation, each group
manager had verified the numerical sequence of all remaining Form 809 receipts
in each assigned receipt book and ensured all receipts issued subsequent to the
last receipt on the list were reflected on the employee’s appropriate Form
795.The responses prepared by the
managers included the name of each employee to whom a Form 809 book is
currently assigned, the serial number of each receipt book assigned to an
employee, the numbers of the individual receipts in the book, and the numbers
of the individual receipts submitted through the closeout date noted on the
memorandum.

Segregation
of duties was adequately maintained for issued Form 809 receipt books within the
CFf groups

The issuance of Form 809 receipt books should be strictly limited to only certain employees
due to the nature of use and security classification of these documents. Managers should ensure only appropriate
employees are issued receipt books and the employees have research only command
codes in their Integrated Data Retrieval System (IDRS)[5] profiles.Group managers adequately maintained segregation of duties in the Phoenix
CFf office by ensuring only appropriate employees had been issued Form 809
receipt books and those employees issued receipt books had research only
command codes in their profiles.For
example, clerical personnel were not issued receipt books due to the inclusion
of sensitive (nonresearch) command codes in their IDRS profiles and their
duties relevant to the completion of Forms 809.In addition, a review of the IDRS profiles for each of the 32 revenue
officers who had been issued Form 809 receipt books within the 4 CFf groups showed
the employees had research only command codes in their profiles.

In general, any employee receiving a
remittance from a taxpayer must transmit the remittance on Form 795 via
overnight, traceable mail the same day it was received or as soon as possible
the next business day, to ensure receipt in the designated Submission
Processing site within 48 hours of receipt from the taxpayer.Because cash payments must be
converted to check or money order, 1
additional day is allowed for cash conversion.Accordingly, remittances are dueat the Submission Processing sites within 3 business days from the date
the IRS received the funds.If receipts are not received timely, the
Remittance Processing Unit at the Submission Processing site will issue a Submission
Processing Center Teller’s Error Advice (Form 5919) to the originating
employee’s group manager for correction.

Overall,
the Phoenix CFf office groups were recording the remittances on Forms 795 and timely
transmitting them to the Submission
Processing site for processing.To
assess the timeliness of remittance processing, we researched 100 remittances[6] on the IDRS and found that all (100 percent)
had posted to the taxpayers’ accounts within 48 hours of receipt.We also reviewed all Forms 5919 issued by the
Submission Processing site that were associated with the 116 Form 809 receipts
and determined none of the remittances transmitted by the 4 Phoenix CFf office groups were identified as not being received
timely by the Remittance Processing Unit.

Our overall objective was to
determine whether internal controls for collecting and depositing remittances
within the Phoenix CFf[7] office
were effective.Specifically, we
reviewed internal controls over the Receipt for Payment of Taxes (Form 809).To accomplish this objective, we:

I.Determined
whether employees in the Phoenix CFf office were effectively following the
proper controls and procedures for processing remittances received and using Form
809 receipt books.

A.Identified and discussed with management
procedures and guidelines for processing remittances received, including the
timely processing of remittances and use of receipt books.

B.Conducted a walkthrough of the Phoenix CFf
office to determine whether controls for processing remittances were followed
and remittances were properly safeguarded.

C.Evaluated the timeliness of processing remittances.

1.Performed IDRS[8] research to identify
the posting of all remittances to taxpayer accounts.

2.Determined the timeliness of the remittances
processed and identified any delay trends.

D.Performed a physical verification of assigned
Form 809 receipt books to determine whether they were properly controlled and
used.

1.Selected and
reviewed all 32 receipt books assigned to the 32 revenue officers in the 4
groups at the Phoenix CFf office.

6.Obtained copies of the authorization memoranda
for the initial receipt book issuances and the signed receipt pages for the
current receipt books.

7.Determined whether receipt books were
returned to the issuing Submission Processing site[1] if receipts had not been issued within 3
years.

8.Identified employees who had recently
transferred, separated, or no longer required use of receipt books and
determined whether the books had been returned to the issuing Submission
Processing site.

9.Determined whether the Phoenix CFf office
timely completed the annual reconciliation of receipt books and compared the
results with the reconciliation completed in Step I.D.1., to determine whether
discrepancies were identified and properly resolved.

E.Conducted a field visitation at the Submission
Processing site[9] in Ogden, Utah, and verified whether the
Form 809 receipts (in the receipt books selected in Step I.D.1.) submitted by
the revenue officers in the Phoenix CFf office had been received and accounted
for properly.

[1]The unit in the Area Offices consisting of revenue
officers who handle personal contacts with taxpayers to collect delinquent
accounts or secure unfiled returns.Area
Offices are a geographic organizational level used by the Internal Revenue
Service business units and offices to help their specific types of taxpayers
understand and comply with tax laws and issues.

[4]The unit in the Area Offices consisting of
revenue officers who handle personal contacts with taxpayers to collect
delinquent accounts or secure unfiled returns.Area Offices are a geographic organizational level used by the Internal
Revenue Service business units and offices to help their specific types of
taxpayers understand and comply with tax laws and issues.

[5]IRS computer system capable of retrieving or
updating stored information; it works in conjunction with a taxpayer’s account
records.Command codes are used
by IRS employees to research and adjust taxpayer accounts on the IDRS.

[6] Of the
total 116 Form 809 receipts issued,
16 receipts were voided.

[7]The unit in the Area Offices consisting of revenue
officers who handle personal contacts with taxpayers to collect delinquent
accounts or secure unfiled returns.Area
Offices are a geographic organizational level used by the IRS business units
and offices to help their specific types of taxpayers understand and comply
with tax laws and issues.

[8]IRS computer system capable of retrieving or
updating stored information; it works in conjunction with a taxpayer’s account
records.